U.S. economy grows at 1.7 percent pace in 2nd quarter

Businesses step up spending

Jeff Caldwell, right, a chassis assembly line supervisor, checks a vehicle on the assembly line at the Chrysler Jefferson North Assembly plant in Detroit in May.

WASHINGTON — The U.S. economy grew from April through June at a modest seasonally adjusted annual rate of 1.7 percent, as businesses spent more and the federal government cut less.

The Commerce Department said today that growth improved from a 1.1 percent rate in the January-March quarter, which was revised from an initial 1.8 percent rate.

While growth remains sluggish, the pickup was surprising as most economists predicted a far weaker second quarter. And it suggests the economy could accelerate later this year as businesses step up spending and the drag from steep government cuts fade.

The second quarter figure indicates “the recovery is gaining momentum,” Paul Ashworth, an economist at Capital Economics, said in a note to clients.

Businesses increased their spending 4.6 percent in the second quarter after cutting by the same amount in the previous quarter. And spending on home construction grew 13.4 percent, in line with the previous quarter.

At the same time, the federal government cut spending only 1.5 percent after an 8.4 percent plunge in the first quarter. And state and local governments increased spending for the first time in a year.

The biggest part of the economy is consumer spending and that grew more slowly in the second quarter. And a surge in imports reduced growth by the most in three years.

Still, economists are hopeful consumer spending will rebound and growth could improve to around 2.5 percent in the third and fourth quarters.

There were signs in the report that companies expect demand to pick up. Businesses added to their stockpiles in the second quarter, which is typically a sign they foresee greater sales.

The government also released comprehensive revisions that updated the nation’s gross domestic product, or GDP, over the last several decades. Those figures showed that the economy grew at a stronger 2.8 percent in 2012, up from an earlier estimate of 2.2 percent. Last year’s first quarter was revised much higher, while the economy barely expanded in the fourth quarter.

GDP is the broadest measure of the nation’s output of goods and services, including everything from manicures to industrial machinery.

Other recent data have been encouraging and suggest that growth will continue to improve.

Home construction, sales and prices have been growing since early last year. Americans purchased newly built homes in June at the fastest pace in five years. That’s raised builder confidence to a seven-year high, which should lead to increases in construction and more jobs.

Overall hiring has accelerated this year. Employers have added an average of 202,000 jobs a month from January through June. That’s up from 180,000 in the previous six months.

And auto sales topped 7.8 million in the first six months of 2013, the best first-half total since 2007. Analysts expect sales will stay strong for the rest of the year.

There are threats to the better outlook. Unemployment is still high at 7.6 percent, limiting consumer spending. And budget fights in Washington could lead to a government shutdown this fall, potentially disrupting the economy.

Federal Reserve officials have forecast better growth in the second half of the year. And Fed Chairman Ben Bernanke has said that the central bank could begin to scale back its bond purchases later this year if the economy strengthens. But Fed officials typically put greater weight on employment and inflation data than the GDP figures.

The Fed concludes a two-day policy meeting today, at which point it could clarify its interest-rate policies.

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